Can Multinational Enterprises be Taxed in an Egalitarian way?

Abstract

Failure to properly tax multinational enterprises (MNEs) located in host states where their users are results in a loss of $155 billion annually. The Organization for Economic Co-operation and Development (OECD) introduced two reform pillars in 2021 to address this gap. The first pillar provides a new taxing framework to replace the current one (Digital Services Taxes). It offers new taxing authority to host states where the consumers are located. The second pillar establishes a base rate for corporate taxes worldwide. Although the OECD proposals are a welcome step in the right direction, they fall short because they need to strike the proper balance between autonomy and flexibility. This paper promotes a compromise between incompetent digital services taxes (DSTs) and redistributing taxing authority. The proposal here aims to establish parameters that host states can work within while preserving countries’ independence to determine their rates. To tax MNEs “appropriately” means striking this balance. The proposals in this paper are driven by liberal egalitarianism and impure welfare philosophies of taxation, which emphasize equal opportunity for more equitable MNE taxation and a more equitable world.